Well, it sure didn't take long for those rumors to be confirmed. As the Associated Press reports, Microsoft and Yahoo have indeed announced a partnership that will see the former's Bing search engine power the latter's search portal:
The 10-year deal announced Wednesday gives Microsoft access to the Internet's second-largest search engine audience . . . In return for turning the keys to its search engine over to Bing, Yahoo will keep 88 percent of the revenue from all ads that run alongside search requests on its site for the first five years of the deal. Yahoo also will have the right to sell search ads on some Microsoft sites.
Yahoo's shares plunged almost 11% after the news broke, apparently because investors expected Microsoft to sweeten the pot with a meaty upfront payment. Newly minted Yahoo CEO Carol Bartz dismissed that reaction in an interview earlier today, saying, "It's very clear that (in this deal) I get virtually all my revenue at no cost. That's what's important on an ongoing basis. A one-time upfront payment, what am I going to with it?"
Yahoo reportedly expects the deal to increase its operating income by $500 million while slashing capital expenditure by $200 million each year. Unsurprisingly, the AP adds that Yahoo now plans to let go an "unspecified number" of engineers.
As we wrote this morning, put together, Microsoft's and Yahoo's search market shares should add up to 28%. (Google has 65% of that market.) However, this new partnership could face roadblocks from regulatory authorities in the U.S. and Europe.